Income tax is a significant source of revenue for the Indian government, funding various public services and infrastructure projects. Understanding the number of people who pay income tax in India provides insights into the country’s economic health and fiscal policy.
Income Tax Payers: An Overview
As of the latest available data, approximately 1.46 crore (14.6 million) individuals filed income tax returns for the assessment year 2022-23. This figure represents a small fraction of India’s population of over 1.4 billion, highlighting a substantial gap in the tax base.
Factors Influencing Taxpayer Numbers
Several factors contribute to the relatively low number of income tax payers in India:
1.High Threshold for Taxable Income: The government has set a relatively high threshold for taxable income to provide relief to lower-income groups. For the financial year 2023-24, the basic exemption limit is ₹2.5 lakh per annum. Individuals earning below this amount are not required to pay income tax.
2.Agricultural Income Exemption: A significant portion of India’s population is engaged in agriculture, and agricultural income is exempt from income tax. This exemption reduces the number of potential taxpayers.
3.Informal Economy: A large segment of India’s workforce is employed in the informal sector, where incomes are often not reported or are below the taxable threshold. This makes it challenging for tax authorities to capture all eligible taxpayers.
4.Tax Evasion and Avoidance: Despite efforts to curb tax evasion, it remains a persistent issue. Some individuals and businesses underreport their incomes or use loopholes to avoid paying taxes.
Efforts to Increase the Tax Base
The Indian government has implemented several measures to increase the number of taxpayers and improve tax compliance:
1.Digital Initiatives: The introduction of online tax filing platforms like the Income Tax Department’s e-filing website has simplified the process of filing returns, encouraging more people to comply.
2.Aadhaar-PAN Linking: Linking the Aadhaar number (a unique identification number) with the Permanent Account Number (PAN) has helped in identifying and tracking taxpayers, reducing instances of tax evasion.
3.Incentives and Penalties: The government offers various incentives for prompt tax payment and imposes penalties for non-compliance. These measures aim to encourage more individuals and businesses to pay their taxes.
4.Public Awareness Campaigns: Efforts to educate the public about the importance of paying taxes and the benefits of a robust tax system have been ramped up. These campaigns aim to foster a culture of tax compliance.
5.Implementation of the Goods and Services Tax (GST)
The introduction of the Goods and Services Tax (GST) in July 2017 was a landmark reform aimed at simplifying the indirect tax regime in India. GST replaced a complex web of multiple indirect taxes with a unified tax structure, making it easier for businesses and individuals to comply. It also brought a larger portion of the informal economy into the tax net, as businesses with a turnover above a certain threshold are required to register under GST and file regular returns.
By broadening the scope of taxation, the GST system has indirectly helped increase the tax base for direct taxes like income tax. Businesses registered under GST are more likely to be scrutinized for their income tax compliance, making it harder for them to evade taxes.
6.Direct Benefit Transfer (DBT) and Financial Inclusion
- Direct Benefit Transfer (DBT) and Financial Inclusion
The Direct Benefit Transfer (DBT) system, which ensures that government subsidies and welfare payments are transferred directly to beneficiaries’ bank accounts, has had a significant impact on financial inclusion in India. By opening millions of bank accounts through the Pradhan Mantri Jan Dhan Yojana (PMJDY), the government has brought a large segment of the unbanked population into the formal financial system.
The formalization of the financial system, with increased access to bank accounts and digital payments, creates a clearer trail of income and expenditures, making it good for tax authorities to track individuals and businesses that should be paying taxes. As more citizens enter the formal banking system, the government’s ability to assess taxable income improves, leading to a gradual increase in the tax base.
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